Basel III and Commercial Banking

The objective of this two day course is to give participants a solid understanding of the Basel III, CRD 1V Frameworks and the EU Directive requiring banks to split retail and investment banking, their implementation time tables and the impact that they will have on banks, the products that they offer and their profitability. This will enable managers to plan for the changes that are necessary to comply with the new regulations.

Available for in-house delivery. Call +44 (0)1483 573150.
Duration: Two days (9.00am to 5.00pm)
Location: In-house
Trainer: Robin Brown
Please contact us for a quotation

Course Outline

Background to Basel III, CRD 1V, Turner and the EU Directive

Implementation Timetable

The Scope of the Regulations

+ Capital Requirements
+ Leverage Ratios
+ Liquidity Rules
+ Supervisory Review
+ Disclosures
+ Large Exposures

The Pillars of Basel II and III

+ Credit Risk
+ Market Risk
+ Operational Risk

What Constitutes Regulatory Capital Pre and Post Implementation?

+ Tier 1 Capital
+ Tier 2 Capital
+ Tier 3 Capital
+ Innovative Capital
+ Calculating regulatory capital ratios
+ How the schedule will affect your Core Tier 1 Ratio and your ability to transact business

The Asset Side of the Balance Sheet

+ The risk asset ratio
+ Risk weightings
+ Off balance sheet items
+ Market risk in the: i) Banking book and ii) Trading book
+ Weighted average rating of the loan book
+ Return on assets
+ Treatment of nonperforming assets

The Asset Side of the Balance Sheet: Liquid Assets

+ Horizon rules and ratios: 30 days and 1 year
+ Definition
+ Cost of holding
+ Choosing and Managing

The Liability Side of the Balance Sheet: Types of Liabilities

+ Repo
+ Deposits: CD's; Market; Non market
+ Securitisation
+ Bond issues
+ Central Bank facilities
+ Standby facilities

The Liability Side of the Balance Sheet

+ Calculating the weighted average maturity of the liabilities
+ Calculating the weighted average cost of the liabilities
+ What is the loan to deposit ratio?
+ What is the due from/ due to ratio?
+ How diversified is the liability mix?
+ Who are the key liquidity providers and how stable are they?

Leverage and Concentration Risk: What are the Rules For?

+ Gross leverage

Leverage and Concentration Risk: How can I adjust leverage?

+ More capital
+ Asset disposal
+ Internal ratings review
+ Asset selection and adjustment + Credit derivatives

Leverage and Concentration

+ Is there unrecognised correlation risk?
+ Do I have wrong way round risk?

My Checklist

+ How are these changes going to impact on the bank?
+ What products might be affected?
+ What clients might be affected?
+ Can I further diversify my deposit base?
+ How will the capital ratio evolve vs the directive deadlines and under changing economic conditions?
+ Do I have the correct resources to effect the changes?
+ How does all of this impact on profitability and return on capital?
+ How does all of this change the risk profile of the bank?
+ Can I stress test my assumptions and the impact of the changes?

This course is run in conjunction with a Bank Capital, Asset, Liability and Liquidity Simulation. The simulation allows for participants, in small groups to build a bank, choosing core tier 1 capital levels and innovative capital instrument issuance. They will then select assets from various categories including government bonds, corporate loans, repo, loans to banks, residential mortgages, credit cards, auto loans and personal loans. Once asset selection has been completed they will fund their banks from a range of liabilities including bond issues, market and non market deposits, repo, retail and corporate current accounts and securitisations. Once the bank has been constructed participants will look at the various metrics which are used to evaluate risk and performance such as regulatory capital ratios, return ratios and stress tests and bring their own metrics to suitable levels. The bank ratios will be compared by the participants to see what strengths and weaknesses each bank has. The simulations will be run over four quarters in changing economic environments to observe the performance of each bank from a risk and profitability perspective. During the simulation participants will have the opportunity to adjust their asset and liability mix.